The government will abolish the dividend tax credit from
April 2016 and introduce a new dividend tax allowance of £5,000 a year.
The new
rates of tax on dividend income above the allowance will be:
7.5% for basic rate taxpayers
32.5% for higher rate taxpayers
38.1% for additional rate taxpayers
What else do we know? Well, we don’t know the full story
given that the details will be included in Finance Bill 2016. In the meantime,
HMRC issued a Dividend Allowance factsheet on 17 August.
This includes some simple worked examples, and contains the
following snippets of information.
The allowance is available to anyone who has dividend
income.
Dividends received by pension funds that are currently
exempt from tax, and dividends received on shares held in an ISA will continue
to be tax free.
The dividend allowance will not reduce an individual's total
income for tax purposes (but it will mean that the individual does not have to
pay any tax on the first £5,000 of dividend income received).
Dividends within the allowance will still count towards an
individual's basic or higher rate band and may therefore affect the rate of tax
paid on dividends in excess of the £5,000 allowance.
